Bottom of the pyramid, you may know as where potential profits could reside. Perhaps it is also time to get introduced to ‘Profit at the Bottom of the Ladder,’ the title of a new book from Harvard by Jody Heymann. The book takes up three questions: Are there additional ways to increase a company’s success? Can there be profits in the private sector while bringing benefits to others? Is there a way for the company and its employees to succeed together?
The answer to these questions comes in the form of success stories of companies from around the world; companies which have been profitable for their owners and shareholders not only while being profitable for their employees, but because they have been profitable for their employees.
These firms have been able to do this for a simple reason, the author explains. How work is structured, how it is rewarded, and how workplaces encourage employee engagement are all central to the profitability of firms and to the quality of the daily lives of working men and women, she adds. “Employees determine 90 per cent of most businesses’ profitability.”
Think beyond minimum wage
Bemoaning the general non-recognition of the fact that the most potent impact can come from the employees at the bottom of the corporate ladder, Heymann reports that the majority of the firms lauded as being among the ‘Best Companies to Work For’ focus their efforts only on the employees at the high end of their corporate ladder, with their policies being unaffordable or unavailable to their line workers.
But the line workers are key to business success. “In call centres, it is the employees answering the phones who determine the quality, pace, and effectiveness of the company’s responses to customers. In maintenance and repair industries, it is the men and women who take the calls and carry out the services who again determine customers’ satisfaction, patronage, and loyalty and whether they recommend the company to others…”
The opening chapter titled ‘Providing more than a living wage’ debunks, therefore, the conventional wisdom that firms can obtain an important competitive advantage by paying the lowest wages they can get away with, especially in the case of the so-called low-skilled labour which is seen as easily and inexpensively replaceable.
In this regard, the chapter chronicles the initiatives in three companies, viz. Jenkins Brick (which provided individual workers with incentives above their hourly wage so that those with low levels of formal education could earn far higher salaries than they would otherwise have attained); American Apparel (which set a modest base hourly wage, but provided teams with financial incentives so that they could increase their earnings by increasing their productivity); and Costco (which offered strong salary progressions so that nearly all employees who remained at the company long term knew they would be able to climb from low to middle income).
Flexibility benefits
A saddening, though not surprising, finding the book speaks of is something similar across tens of thousands of households and across five continents: that the low-level employees are far less likely to have any kind of paid sick leave; paid annual leave; ability to set their own work hours; and flexibility to care for their own health or that of their children, or for aging parents.
Reassuringly, there are companies such as Autoliv Australia which have implemented leave and flexibility benefits as incentives to reduce turnover rates and improve recruitment and retention, thereby lowering costs and increasing productivity and the quality of production, the author informs. Autoliv’s policies, for instance, proved to be effective not only during a positive economic climate, but also when the company faced worsening economic conditions, she notes.
Among the statistics cited in the book are those from the UK, where the Department of Business, Enterprise and Regulatory Reform has estimated that extending existing flexible working programmes to employees with older children, at a cost of 69 million pounds would benefit employers 91 million pounds annually – that is, 64 million pounds from increased productivity, 21 million pounds from reduced recruitment costs due to lower turnover rates, and 6 million pounds from lower absence costs.
Options at all levels
Heymann makes a case for including the lowest-level employees in any asset building programme, such as stock options and profit sharing, as a way to reduce the gap in wealth among different strata. She observes that in start-up companies, executives often take the calculated risk of receiving stock options in exchange for lower salaries, based on the belief that they will make more money in the long run that way.
“CEOs and top management can afford to defer their income gains, since their earnings and assets are still more than sufficient to live on and tide them over. But hardly any companies have offered stock options to their line workers. Companies have assumed that line workers won’t understand or value these options. Moreover, low-income workers clearly can’t afford to defer their income in the same way as managers.”
Breaking from such traditional thinking was Dancing Deer, which in 1996 put stock options in place for everyone, from bakery and factory floor workers to senior management, recounts the author. “The company ensured that it paid its line workers wages that were at least as high as those paid for similar jobs elsewhere. Unlike management, line workers were not asked to accept lower salaries in exchange for stock options; that would have been utterly unrealistic since there was no way they could have lived adequately on reduced salaries.”
Management realised that providing stock options allowed employees to grow assets and share in the company’s financial success, and that the company benefited from employees’ increased sense of ownership, reasons Heymann. She emphasises that the stock-option programme provided a way to distribute the benefits of everyone’s hard work while ensuring that employees felt the importance of increasing the company’s productivity.
Community investments
Thousands of companies give a very small fraction of their profits to local community organisations, but these gifts are frequently more symbolic than transformative, rues Heymann. She frets that these companies’ financial engagement and commitment to successful outcomes is limited since they see these investments as utterly peripheral to their core objectives.
To prove that firms can see the healthy growth of the communities in which they operate as essential to the core of their business, a chapter titled ‘Reaping returns from community investments’ lauds the work of ACC, in India. What made ACC’s land transfers unique, in the author’s view, was the company’s ongoing commitment to developing the community by building better educational and health supports while providing long-lasting economic opportunities.
She finds it noteworthy that the company is directly benefiting from its investments in education especially in the older sites that have been operating for decades, because ACC is employing the second and third generation of families. “Operating with a good reputation in small communities as one of the few employers, it is not surprising that children of ACC employees have sought jobs with the company upon entering the workforce. Harvesting the benefit of providing these children with better educational opportunities, ACC now has a more highly educated workforce.”
The other example in the chapter is of Costco, a wholesaler in the US, which did not have to construct roads and schools like ACC did. Sensing the different needs of the communities where it operated, ‘Costco provided good health insurance so that employees could afford to fully utilise clinics and hospitals; it provided jobs to college students so that they could afford to finish school; and it supported workers who chose to return to school part-time while working in Costco warehouses.’
Imperative addition to the ethical managers’ bookshelf.
